An electronic exchange provides an automatic matching process between buyers and sellers, also referred to herein as traders. In particular, traders connect to an electronic exchange over a communication link. If necessary, a gateway is sometimes used to connect the trader with the electronic exchange. Once a trader is connected, the electronic exchange can broadcast its data feed to the traders over the communication link. Subsequently, the traders receive the data feed, in one form or another, and their computers process the information. Traders may respond by sending orders to buy or sell the tradeable object. When the electronic exchange receives an order, it may check the limits of the order, for example price and quantity, and prioritize the order in its electronic order book. When buy and sell orders match, a trade occurs and information relating to the trade is relayed back to the traders' computers.
As used herein, a tradeable object simply refers to anything that can be traded with a price and/or quantity. Examples of tradeable objects may include, but are not limited to, all types of traded events, goods and/or financial products, such as, for example, stocks, options, bonds, futures, currency, and warrants, as well as funds, derivatives and collections of the foregoing. Moreover, tradeable objects may include all types of commodities, such as grains, energy, and metals. A tradeable object may be “real”, such as products that are listed by an exchange for trading, or “synthetic”, such as a combination of real products that is created by the trader. A tradeable object could actually be a combination of other tradeable objects, such as a class of tradeable objects.
For each tradeable object, an electronic exchange maintains an order book. The order book is generally a listing of unexecuted orders at various prices. As indicated earlier, when an order arrives at the electronic exchange, it determines if a match already exists in the order book. If so, then a match occurs such that part of the incoming order or the entire incoming order is filled. If not, then the incoming order is added to the order book. Orders are generally prioritized in the order book by at least the order price. A given price level might have one or more orders resting in the order book.
Information that describes some or all of the electronic exchange's order book is disseminated in the data feed to all of the traders. The kinds of information that are present in an electronic exchange's data feed are relatively dependent on the exchange itself. However, most electronic exchanges provide the same key pieces of information. For instance, they typically provide the best prices. This might include the best bid price, which represents the highest price that someone is willing to pay for the tradeable object, and the best offer price, which represents the lowest price that someone is willing to sell the tradeable object. Together, the best bid price and the best offer price available in the market make up the inside market. A data feed might also include one or more levels of the next best prices such as the next highest bid price(s) or the next lowest ask price(s). Along with price information, an electronic exchange will likely provide the bid and offer quantities available at those prices. More advanced electronic exchanges may even provide things like the last traded price (“LTP”), the last traded quantity (“LTQ”), the previous day's settlement price, the open price, the close price and other information.
During a typical trading day, traders send in orders to the electronic exchange with hopes that the market will reach their order prices and ultimately fill their orders. When a market moves up or down, a matching engine can sometimes match all of the orders resting in the order book at a particular price and then move to orders resting at the next price level, and sometimes this kind of market movement all happens with little or no hesitation. These “waves” of market movements can create instant buying and selling opportunities for the traders. Other times, the market moves up or down in a slower fashion. Either way, traders attempt to determine the market's direction and make trading decisions accordingly with hopes to profit on their assumptions.
In the following detailed description, tools for assisting a trader in capturing opportunities for a tradeable object are described. These tools provide advantages, as described below, to a trader in an electronic trading environment.